Surely, you’ve heard about Bitcoins. It is a kind of decentralized cryptocurrency, which operates in an online medium. Introduced to the world in 2008, it has been growing exponentially and is now worth millions of reais. The bitcoin market is now over a trillion dollars. And its price goes up tenfold in a year.
However, even though the popularity of cryptocurrencies such as Bitcoin, Dogecoin and Ethereum continues to grow, in May of this year Bitcoin had a precipitous drop of approximately 40%. But will cryptocurrencies ever replace traditional currencies like the dollar and the euro?
The dollar and the euro are examples of traditional or fiat currencies, that is, banknotes and coins that are printed by governments and whose value depends on economic policy and the strength of a country’s economy. The origin of the term fiduciary comes from the Latin “fiat”, which means “be done”.
And the dollar, for example, maintains its value because the United States is the greatest economic power in the world. As a result, most commodities, oil and gold, are traded in dollars. This gives the currency a world reserve status.
Likewise, the strength of the eurozone economy boosted the value of the European currency. It is the second most common reserve.
Most of the fiat currency supply is created digitally, either by central banks that transfer money to major banks, or by the banks themselves in the form of loans to governments, businesses and individuals.
Already criptomoedas are private and operate independently of governments. For example, Bitcoin, which emerged during the financial crisis of 2009 because of concerns about the stability of the global financial system. And very quickly it gained strength precisely because of fears of political instability and because governments were taking on too much debt.
Can they replace?
Today, China is testing its own digital currency, the digital yuan. The United States and the European Union say it’s only a matter of time before the coins turn completely digital, looking like cryptocurrencies.
Several financial analysts believe that the blockchain technology, which is when there is no link to any server but to the global computer network, behind coins like Bitcoin will be useful for releasing digital versions of coins that already exist and are supported by the government. Also because this technology makes coins less vulnerable to fraud.
Bitcoin enthusiasts say the shortage of private currency will help its credibility among investors. Amid a huge stimulus to money printing in central banks around the world on account of the COVID-19 pandemic.